Media release: Review finds online lenders are reluctant to embrace the spirit of new regulations

A review conducted by the Consumer Action Law Centre has found that some online lenders providing ‘payday loans’ are reluctant to embrace the spirit of new regulations intended to provide consumers with sufficient warnings about the hazards of these loans.

‘Regulations[1] are very specific about website warnings, dictating the specific wording to be displayed on a website, as well as the text size, font size, and placement of the warning information. Despite the requirements, our experience in reviewing websites found that we were not drawn to some warnings—lessening the impact of these important legislative protections,’ said Gerard Brody, CEO of Consumer Action.

Consumer Action is concerned at the results from the review, and urges the Government to resist any attempt to wind back regulations that protect the most vulnerable consumers who are the target market for payday lenders.

‘The activities of online payday lenders are under intense scrutiny in many jurisdictions’ continued Mr Brody. ‘Local councils in the UK are now blocking public access to websites to protect consumers from falling victim to these high-cost loans[2]. At least one US state which has banned online payday lenders from trading in their state is asking banks to prevent lenders from accessing consumer bank accounts to repay allegedly illegal loans.[3] Overseas regulators are clearly on high alert as this form of borrowing becomes more readily available online.’

Warnings not being displayed in a way that would attract consumer attention;

Seemingly incorrect or incomplete warning text; and

Not requiring consumers to acknowledge warnings before accessing a loan application.

This suggests an important role for the regulator to ensure lenders comply in good spirit.

‘Payday lending websites regularly change. The Australian Securities and Investments Commission (ASIC) needs to be vigilant in checking lender websites are compliant, and act swiftly where warnings are missing or inconsistent with regulatory requirements’, continued Mr Brody.

‘Among its regulatory powers, ASIC has the power to suspend or cancel credit licences for non-compliance with credit legislation. Taking enforcement action would send a clear message to the industry that a credit licence is a privilege not a right, and that abiding by the law is a basic requirement for all licence holders’, he concluded.

ENDS

Media Contact: Dan Simpson, 0413 299 567.

Background

Payday loan customers are often vulnerable, low-income Australians who take out these expensive, short term, high interest loans to pay for basic living costs. Many borrowers become reliant on these loans and can’t find their way out of debt. Web warnings asking if the applicant really needs a loan and promotion of free financial counselling services were a key part of recent reforms to protect these borrowers. Warning requirements have existed since March 2013, in addition to the introduction of a limit on fees (which came into effect in July 2013), and new measures to stop borrowers taking out loan after loan.

Consumer Action’s infographic shows how, even under the new laws, a single payday loan can push a low income earner into the red.

[3] New York State’s Department of Financial Services website states: “Payday loans are illegal in New York State. It is a violation of New York State law to make payday loans in-person, by telephone, or over the Internet. It is also illegal for a debt collector to collect, or attempt to collect, on a payday loan in New York State”. In late September, it was reported that the New York Attorney General’s office had reached settlements with five companies over charges of violating the state’s usury and licensed lender laws through the collection of payday loans.